Ascendis Pharma A/S Q1 FY2022 Earnings Call

Good day and thank you for standing by. Welcome to the First Quarter 2022 Ascendis Pharma Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please follow the operator's instructions. I'd like to hand the conference over to your speaker today, Tim Lee, Senior Director Investor Relations. Please go ahead.

Thank you, Operator. Thank you everyone for joining our first quarter 2022 financial results conference call today. I'm Tim Lee, Senior Director of Investor Relations of Ascendis Pharma. Joining me on the call today is Jan Mikkelsen, President and Chief Executive Officer, Scott Smith, Senior Vice President and Chief Financial Officer, Dr. Dana Pizzuti, Head of Development Operations and Chief Medical Officer, Dr. Juha Punnonen, Head of Oncology, and Dr. Stina Singel, Head of Clinical Development Oncology. Before we begin, I would like to remind you that this conference call will contain forward-looking statements that are intended to be covered under Safe Harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include, but are not limited to our U.S. commercialization and continued development of SKYTROFA for the U.S. market, the commercialization of TransCon hGH for the EU market, our progress on our pipeline candidates and our expectations with respect to their continued progress; statements regarding our strategic plans, our goals regarding our clinical pipeline, including the timing of clinical results, statements regarding the U.S. market approval of SKYTROFA and our pipeline product candidates; statements regarding our planned regulatory filings, our expansion into new therapeutic areas and statements regarding our ability to create a sustainable, leading global biopharma company. These statements are based on information that is available to us today. Actual results and events could differ materially from those in the forward-looking statements and we may not be able to achieve our goals, carry out our plans or intentions, or beat the expectations or projections disclosed in our forward-looking statements, and you should not place undue reliance on these statements. Our forward-looking statements do not reflect the potential impact of any licensing agreements, acquisitions, mergers, dispositions, joint ventures, or investments that we may enter into or terminate. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking statements section in today's press release and the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC on March 2nd, 2022. TransCon Human Growth Hormone or TransCon hGH is approved by the FDA in the U.S. under the brand name SKYTROFA for the treatment of pediatric patients one year older, weighing 11.5 kilograms and have growth failure due to inadequate secretion of endogenous growth hormone. In addition, the European Commission has granted marketing authorization for Lonapegsomatropin Ascendis Pharma developed under the name TransCon hGH, as a once weekly subcutaneous injection for the treatment of children and adolescents, aged 3 to 18 years, with growth failure due to insufficient secretion of endogenous growth hormone. In general, we refer to this product as TransCon hGH, unless we refer to the product in the context of a particular jurisdiction, such as the United States or the European Union. Otherwise, please note that our product candidates are investigational and not approved for commercial use. As an investigational product, the safety and effectiveness of the product candidate have not been reviewed or approved by any regulatory agency. None of the statements made on the conference call regarding our product candidates shall be viewed as promotional. On today's call, we will discuss our first quarter 2022 financial results and will provide further business updates. Following some prepared remarks, we will then open up the call for questions. I will now turn the call over to Jan Mikkelsen, President and Chief Executive Officer.

Thanks, Tim, and good afternoon. 2021 was an extraordinary year for Ascendis. We became a fully integrated commercial states biopharma company, with the launch of SKYTROFA in the U.S. and the expansion of our clinical pipeline to five independent programs in endocrinology, rare disease, and oncology. These milestones confirm that we have the right strategy, the right people, and capabilities in place to allow us to achieve our vision and build a sustainable, profitable, leading global biopharma company. In 2022, we have already achieved an important milestone. In March, we reported results for the TransCon PTH Phase III program and our PaTHway trial met the primary and all key secondary endpoints. TransCon PTH is our product candidate addressing a major unmet medical need for adults with chronic hypoparathyroidism. This population has around 200,000 patients in North America, Europe, and Japan alone. It is rare for a biotech company to have two potential blockbuster product candidates in a row achieving that target product profile and successfully meeting their Phase III trial objectives. What has put Ascendis in this unique position is first, our TransCon Technology Platform and our commitment to product innovation. The uniqueness of the TransCon Technology Platform combines the benefits of two independent technology platforms, the classical pool of technology and a predictable sustainable technology. The TransCon technology platform can be applied to multiple drug types. We believe this combined with our validated approach to product innovation enables us to achieve a higher rate of success compared to traditional drug development. Our commitment to patients and the science has guided our product development strategies. We seek to design optimal clinical programs to bring different investigational product candidates to patients as quickly as possible with robust clinical data. Third, and at this time, of extreme importance, we have a strong financial balance sheet to support long-term strategic execution. We have the capital necessary to leverage both short and long-term goals. During the first quarter, we further strengthened our balance sheet through a convertible note offering. As a result, with the cash on hand today, we believe we are well-positioned to deliver our Vision 3x3 strategy, independent of financing. What makes me so optimistic for the future? I am optimistic for the patients and for Ascendis because all our five independent clinical programs are based on the TransCon technology and developed using the same rigor for product innovation, and we navigate the regulatory pathway with the same experienced global Ascendis team that brought TransCon Growth Hormone through approval in the U.S. and Europe. We believe we have demonstrated the fundamentals for creating a continuous stream of product candidates with the potential to address major unmet medical needs with greater success than traditional drug development. In short, we believe Ascendis has the right approach to our portfolio of product candidates, the right people and capabilities, and the necessary funding to leverage our goal to create a sustainable leading global biopharma company. Throughout the rest of the year, we look forward to sharing clinical data from across our pipeline, including our third endocrinology rare disease product candidate, TransCon CNP, in the fourth quarter and from our oncology programs, which have multiple important milestones this year. For TransCon Growth Hormone, which is now approved in both the U.S. and Europe, we continue to build awareness and increase adoption and coverage in the U.S. under the brand name SKYTROFA. We believe that SKYTROFA is a unique, important treatment option for patients, and we are determined to build it into a leading global brand. As we work to shift the daily treatment paradigm for physicians and patients, I'm pleased to share that brand penetration continues to grow with increased prescriptions, treated patients, and covered lives. As part of our commitment to making TransCon Growth Hormone the leading treatment option in the global growth hormone market, we continue to recruit patients for our global foresight trial of TransCon Growth Hormone in adults with growth hormone deficiency. As a result of the ongoing war in Ukraine, we do not expect any patients in certain Eastern European countries to be part of our foresight trial, and we have modified our recruitment efforts to focus on other countries to compensate. We are now targeting the completion of enrollment of the foresight trial during the fourth quarter of this year. In addition, to support further label expansion for TransCon Human Growth Hormone, we are planning a protocol submission in the second quarter to the FDA for Turner syndrome. Turning now to TransCon PTH, we believe that the best way to treat a hormone deficiency is to replace the missing PTH hormone at physiological levels for 24 hours. For this unmet need, we designed TransCon PTH to become the first complete PTH hormone replacement therapy, which addresses the underlying cause of this deficiency. The positive Phase III Pathway trial results for the composite primary endpoint and all key secondary endpoints confirm our belief in this potential. As a reminder, the Phase III results at week 26 showed that 95% of TransCon PTH treated patients, meaning 57 out of 60 patients, were able to eliminate the need for daily treatment with calcium supplements, active vitamin D, and related medications. In addition, for key secondary endpoints, the improvements seen in our quality-of-life instrument showed that TransCon PTH treated patients reported significant decreases in disease symptoms and significant improvements in physical functioning. All Phase II and Phase III trials of the first clinical trials showed statistically significant improvements in quality-of-life measurements and demonstrated consistent results across both stocks. I believe these improvements specifically normalize the quality of life for adults suffering from chronic hypoparathyroidism, who often experience multi-organ comorbidities and reduced quality of life. We are doing the work to try to build this new market and treatment paradigm because these patients deserve a better life. Understanding the urgent need, we are working to bring TransCon PTH to the regulatory process in the U.S. and Europe as quickly as possible. The robust datasets from our Phase II and Phase III studies will be the foundation for our planned U.S. and European regulatory submissions, which remain on track with a U.S. NDA filing planned for Q3. And in Europe, a MAA filing planned for Q4. In Japan, we recently completed enrollment in our Pathway Japan Phase III trial, and we plan to report top-line results later this year, which demonstrates Ascendis' global development capabilities. If approved, we believe TransCon PTH has the potential to become our largest endocrinology product, and the only PTH replacement therapy available in an estimated market opportunity of over $5 billion. Let me switch now to TransCon CNP for achondroplasia. We designed TransCon CNP to provide sustained release of effective levels of CNP over the course of treatment to avoid height impairment, which may be the driver of cardiovascular complications. We've completed enrollment and accomplished our Phase II randomized double-blind placebo-controlled clinical trials of TransCon CNP in children with achondroplasia aged 2 to 10. We look forward to sharing the top-line results for this Phase II study during the fourth quarter of this year. Moving to oncology, where unmet need remains high. In oncology, we're applying the same algorithm we have used in endocrinology and rare diseases to bring forward product candidates that we believe will address major unmet medical needs with higher success compared to traditional drug development by building biological pathways. We believe that TransCon technology can address some of the challenges that limit these immunotherapies and address additional aspects of the immune cycle to induce the patient's own immune system to potentially eliminate tumors. To transform this treatment paradigm in quality, we are using TransCon to enhance tumor microenvironment modulation and activating immune cells. TransCon TLR7/8 agonist utilizes the TransCon intra-tumor technology platform and is designed to kick-start the immune system inside the tumor. TransCon IL-2 beta/gamma uses the TransCon systemic technology platform and is designed to increase the systemic stimulation of the body's own cancer immune system. We believe the TransCon IL-2 beta/gamma development program may yield significant advantages over all current treatment options. We are beginning to see promising results, and we will provide additional data by the end of this year. The results we plan to present later this year will include additional clinical data from our TLR7/8 agonist program. At the end of last year, we reported early signs of clinical efficacy and a better-tolerated safety profile. Enrollment continues in our Phase 1/2, beginning with TransCon TLR7/8 agonist monotherapy and in combination with checkpoint inhibitors in patients with advanced or metastatic solid tumors. Later this year, we expect to share top-line monotherapy and combination therapy dose escalation data from this track. For TransCon IL-2 beta/gamma, we have already moved into our cohort for monotherapy in our Phase 1/2 trials with dosing at 80 micrograms per kilogram, with the expected strong safety profile that we designed this molecule to have. We're using the TransCon technology to release highly potent IL-2 beta and gamma, allowing us to modulate the immune response while minimizing toxicity. This summer, we're looking forward to sharing initial data related to TransCon IL-2 beta/gamma activation of immune cells. We expect top-line monotherapy data by the end of 2022. Later this quarter, we are targeting the first patient dose in a combination therapy portion of the Phase 1/2 IL-2 beta-gamma trials. TransCon IL-2 beta/gamma and TransCon TLR7/8 agonist work on different parts of the immune system, and we believe these development programs could potentially work together synergistically to become a new backbone in therapy, independent of checkpoint inhibitors. We expect to initiate clinical trials exploring this potential synergy together later this year. As for our overall strategy, we are finalizing the selection of our third indication, and I'm looking forward to sharing more information about this by the end of the year. This is a great time for Ascendis, but we never forget why we're here. To make a meaningful difference in the lives of patients. Our corporate strategy has been clearly defined in our Vision 3x3, and we continue to achieve impactful results as we're working across the portfolio. The values that drive our organization combine patient-centric thought with our strong financial foundation and expanding in-house capabilities, positioning us to advance our clinical and commercial milestones that contribute to our long-term sustainability and profitability. I firmly believe we have the right team, culture, and capability in place to execute. I will now turn the call over to Scott for additional details and financial review before we open for questions.

Thanks, Jan. As Jan eloquently laid out, 2022 is an important transition year for Ascendis. We have demonstrated we have all the elements of success in place to deliver sustainable growth, and we have a strong balance sheet to support execution of our Vision 3x3 strategy and long-term profitability. Turning now to our financial results for the quarter ended March 31, 2022, we reported a net loss of €125.5 million or €2.21 per basic and diluted share compared to a net loss of €62.3 million or €1.17 per basic and diluted share during the first quarter of 2021. We ended the first quarter with cash equivalents and marketable securities totaling approximately €1.1 billion. Let me now run through some key components of these results. Total revenues for the first quarter were €6.8 million compared to €0.7 million during the first quarter of 2021. Revenues include U.S. SKYTROFA net sales, as well as licensed clinical supply and services provided to third parties. Reported U.S. SKYTROFA net sales for the first quarter, which are net of provisions to cover estimated sales deductions and product returns, were €1.9 million. Now turning to operating expenses, research and development costs for the first quarter were €83.2 million compared to €88.1 million during the first quarter of 2021. This reflects stabilization of our overall R&D costs due to the successful progression of early-stage programs through late-stage development and approval. Selling, general, and administrative expenses for the first quarter were €47.4 million compared to €37.2 million during the first quarter of 2021. These higher expenses primarily reflect increased costs to establish our commercial organization in the US. Finance income and expenses for the first quarter included a net foreign exchange rate gain of €11.7 million compared to a net gain of €34.2 million during the first quarter of 2021. Finance expenses for the first quarter also included €4.2 million in transaction costs related to our U.S. $575 million convertible senior notes financing. Going forward, we may potentially report significant volatility in the finance income and expense line as IFRS accounting rules will require us to re-measure the conversion option embedded in the convertible notes at fair value on a quarterly basis. Finally, we ended the first quarter with cash equivalents and marketable securities totaling approximately €1.1 billion. Turning to an update on our U.S. launch of SKYTROFA for pediatric growth hormone deficiency (GHD), the demand for SKYTROFA continues to be strong. The total number of patients receiving prescriptions enrolled through our patient hub grew from 369 at the end of 2021 to 978 as of March 31st. The number of healthcare practitioners prescribing SKYTROFA increased from 139 at the end of 2021 to 349 as of March 31st. In addition, through the first quarter of 2022, 46% of these healthcare practitioners prescribed SKYTROFA to more than one patient compared to 41% at the end of 2021. From launch through April 29th, 1,231 SKYTROFA prescriptions have been written by over 400 prescribers and submitted to our patient hub for processing. Of those prescribers, nearly 50% have prescribed SKYTROFA to more than one patient. From a market access perspective, 45% of U.S. lives were covered as of the end of April, reflecting continued adoption of SKYTROFA on formulary by health care plans. We believe SKYTROFA has unique benefits for patients and payers alike, and we will continue to work with payers, pharmacy benefit managers, and group purchasing organizations to maximize coverage within our premium responsible pricing strategy. As a reminder, once approved for reimbursement by a payer, the patient will generally finish their current supply of daily growth hormone or SKYTROFA prior to beginning reimbursed therapy with SKYTROFA. Turning to the remainder of 2022, we expect our expenses to increase modestly as our pipeline matures and we continue to build our commercial capabilities and organization in preparation for additional anticipated product launches. Let me also provide an update on select corporate milestones for TransCon PTH. We are on track for our planned NDA submission in Q3 2022 and a planned MAA submission in Q4 2022. For TransCon CNP, top-line data from the Phase II trial are expected in Q4 2022. For TransCon TLR7/8 Agonist, top-line monotherapy and combination therapy dose escalation data from the Phase I/II trials are expected in Q3 2022. For TransCon IL-2 beta/gamma, we are on track to dose the first patient in the checkpoint combination dose escalation arm of our trial in the second quarter of 2022. Monotherapy top-line results are expected from this trial in Q4 this year. Within oncology, we expect to submit an IND or equivalent for a Phase II cohort expansion in order to evaluate the combination of TransCon TLR7/8 Agonist and TransCon IL-2 beta/gamma therapy in Q4 2022. Finally, we plan to announce our third therapeutic area in the fourth quarter this year. As you can see, it's a busy year ahead for Ascendis, with key catalysts across the pipeline, both in endocrinology, rare disease, and oncology. As Jan noted, we strengthened our finances earlier this year, raising capital at favorable terms with our convertible note financing in Q1. With over €1 billion on our balance sheet, we have the capital to fund our growth initiatives and execute on our Vision 3x3 to build a sustainable global biopharma company. We very much look forward to seeing many of you face-to-face at the upcoming conference in Las Vegas tomorrow. With that, Operator, we are now ready to take questions.

Thank you. In the interest of time, we kindly ask that you please limit yourselves to one question and one follow-up. You may rejoin the queue if you have any additional questions. Our first question comes from Jessica Fye from JPMorgan. Your line is open.

Hey, guys. Good afternoon. Thanks for taking my question. In line with SKYTROFA numbers, I had a couple of questions to clarify what we're seeing here. Also, for patients who have been prescribed SKYTROFA, what proportion were reimbursed during the first quarter? In light of the lag that you mentioned between plans adopting coverage and patients starting on reimbursed product after they finish using their free drug, can you tell us what proportion of those patients are on plans that now cover SKYTROFA?

Thanks, Jess, for the two questions. Let us start with the last question about the timing. This is actually a timing that is still under development. So, if we start to discuss the number now, then it will basically be a completely different number in two or three months from now. Because it's applying a general principle, as we've seen from the data that Scott released, the majority of the patients are still coming from previously unused patients, so still many of them will have daily growth hormone supply, and it will take some time before they have used up the daily growth hormone supply before they start with SKYTROFA. As we discussed previously, in our Q2 finances, we will provide an updated perspective both on our expected revenue basis for the rest of the year, and we will give you much more solid data. The reason we believe we can provide this more solid data is because we will have all the fundamental analytics for two full quarters. When we have that, we feel much more comfortable to be in a position to provide information that can help you realize forecasting of the sales.

To address your question related to how many patients are reimbursed now, once the patient receives their first claim reimbursed, I would say we have limited information after they start being dispensed via the specialty pharmacy. However, from a financial perspective, as I mentioned, we've taken that provision for various discounts, rebates, and product returns. We strive to be as conservative as possible until we gather enough experience around how the patient evolves over time.

When we talk about net revenue, we're incorporating various worst-case scenarios, including product recalls and other considerations because we want to avoid needing to adjust forecasts at the end of the year. This conservative approach provides a solid foundation for reporting what we believe to be real net revenue.

Thanks. My follow-up question is whether you expect priority review in the U.S. for TransCon PTH?

I believe we're going to make a strong case for it. Ultimately, it's up to the agency to make their decisions, but we will definitely be in communication with them about it.

Thanks so much for taking my question. For TransCon PTH, there has been a lot of interest and enthusiasm for the product to have nephron protective and potentially cardio protective properties. When do you think you'll be in a position to generate clinical data to support that, focusing on tangible proof rather than theoretical advantages?

When we look at the potential of TransCon PTH, we believe the way we're providing PTH to patients, at physiological levels, around the clock, addresses critical concerns, including cardiovascular risk. We already have what are called surrogate markers indicating strong scientific and clinical correlations, like calcium phosphate complexes, which provide insights into cardiovascular risk. Patients already on treatment give us the chance to analyze these metrics and build a strong scientific rationale for the positive impact this therapy may have.

As we've looked at the data and the correlation between the PTH levels and urinary calcium levels, we see that it doesn't take much PTH to restore the body's ability to manage calcium. The longer we observe these patients, the more stability we anticipate in their conditions, though we cannot yet determine precisely when we’ll see clinical benefits, particularly avoiding progression of renal complications.

It's essential to consider patient retention as a measure of success. Patients stay in the clinical trial or treatment because they feel normal again, not just because of long-term benefits. When we see consistent patient retention among those who have been receiving treatment, it's a clear indicator of the therapy's positive impact.

Thank you very much for taking my question. Although you're not comfortable giving specific timing on reimbursement, could you walk us through the typical process for how a patient goes through diagnosis and treatment with growth hormone, including prescription submission and how long that might take depending on their insurer's coverage?

There are many scenarios to consider regarding the process. First, we need to determine if the patient is new or already established on daily growth hormone. New patients must go through various tests and evaluations to confirm a diagnosis of growth hormone deficiency, which can take time. On the other hand, for established patients, the process is much simpler. The variability in insurance coverage and how reimbursement systems operate makes it challenging to provide a single timeframe since many factors influence the process. Our analysis indicates that the complexity of these paths depends heavily on the patient's history and the insurance system's structure. We aim to provide clearer data on this issue as it evolves.

Thank you. I have a question about the free drug policy for SKYTROFA. What duration of therapy are patients entitled to receive before insurance kicks in, and do you have any data on the success rate for patients being able to receive insurance coverage once their free drug supply runs out?

Good question. We're analyzing this continuously. The expected development has revealed that while some patients take advantage of the free drug program, many do not. We're seeing two distinct patient uptakes, both from new patients and switch patients. Previous patients tend to have an easier transition since they've already been diagnosed. However, as market access continues to improve, we're beginning to see more shift from free to reimbursed therapy.

This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.